Morning Report: 8 February 2017

8th February 2017 By: Ranko Berich

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GBP.  Sterling enjoyed a boost yesterday that it’s holding on to this morning after the Bank of England’s Kristin Forbes made some hawkish comments on the outlook for inflation and monetary policy. Forbes, who has never voted for an increase in rates during her tenure as a member of the Monetary Policy Committee, said she was beginning to grow “uncomfortable” with the balance of risks in the Bank’s current outlook, and that it would become increasingly difficult for her to tolerate an inflation overshoot. Halifax’s House Price Index fell 0.9% in January, leaving year on year growth at 5.7%. Today at 13:00 GMT the Bank of England’s Jon Cunliffe will speak.

EUR.  The euro’s most significant price action of the last 24 hours has been against the US dollar, against which it fell to a low for the week in the early morning, before rallying and ultimately finding itself under pressure again. There seems to be plenty of room for the euro to fall further should EURUSD fall through yesterday’s lows, given EURUSD was reaching multi decade less than two months ago, but no headline EUR data will be released today so the impetus will have to come from political developments or from USD strength.

USD.  After several weeks on the back foot the dollar is showing signs of life again this week, quite possibly due to a lack of fresh policy announcements from President Trump. The trade deficit shrunk slightly to 44.3 billion in December, according to data released yesterday. The data nonetheless capped off the biggest annual deficit since 2012. The Job Openings and Labour Turnover Summary showed 5.5m job openings in the economy, practically unchanged from last month’s high level. Today will be a quiet day for USD, putting the focus on fixed income markets and political developments.

CAD.  The loonie weakened further yesterday, as Canada recorded a smaller than expected trade surplus in December. Building Permits contracted by almost twice the amount expected in December, while the Ivey PMI also fell slightly short of expectations, rounding off an afternoon of poor data. Today at 13:15 GMT Housing Starts data will be released, and at 15:30 US Crude Oil Inventories will be out.

UK news

Europe’s top bankers face off over impact of disorderly Brexit Carney says architecture of financial system could collapse but Draghi disagrees. Europe’s most important central bankers are at loggerheads over one of the continent’s biggest economic judgment calls: does disorderly Brexit pose a financial stability risk? For Mark Carney, Bank of England governor, a messy and severe Brexit could be a “Jenga” moment, where the legal architecture for financial flows collapses, hurting the City of London’s European customers even more than Britain itself. Mario Draghi, meanwhile, is largely unfazed. The European Central Bank governor has told EU-27 negotiators he is unworried about financial risks from a mobile industry that is adapting to new circumstances. Far from a stability threat to the eurozone, Brexit costs will be containable — and concentrated in Britain.

Bank of England’s Forbes breaks ranks, says rates could rise soon – Reuters Differences among Bank of England officials about the outlook for interest rates moved into sharper focus on Tuesday, as one of them said rates might need to rise soon if the growth remains solid and inflation continues to accelerate. Last week the central bank signalled it was in no rush to hike rates, with BoE Governor Mark Carney stressing that Britain’s economy would face “twists and turns” during its departure from the European Union. But Kristin Forbes, an American academic and external member of the Bank’s Monetary Policy Committee (MPC), said she was beginning to grow uncomfortable with the BoE’s policy stance.